Stupid Bait and Switch Marketing

July 23, 2012

July 23, 2012

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I was reading the New York Times, learning from Thomas Friedman about the myriad of Islamic uprisings that are about to occur and I was presented with the attached ad. Here is a another great example of dumb advertising (see a video on the same topic). Bluepay is an ISO (independent sales organization), basically a […]

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I was reading the New York Times, learning from Thomas Friedman about the myriad of Islamic uprisings that are about to occur and I was presented with the attached ad.

Here is a another great example of dumb advertising (see a video on the same topic).

Bluepay is an ISO (independent sales organization), basically a reseller of credit card processing that recently got in trouble with Google for gaming search results by buying links from Forbes.

Offers like “Credit card processing for as low as 0.95%” are too good to be true and should be ignored.  It would be deceptive advertising except for the technicality that they add “as low as” and do not actually say that is the rate, only that it *could* be the rate.  In my opinion it is still sneaky and not a good business tactic.

  • Even for the cheapest kind of transaction, a debit transaction that occurs in person, a processor has to pay 0.95%+0.20 in interchange fees to the banks that issue the debit cards and another 0.11%+0.02 to Visa and Mastercard in assessments, APF and NABU.  As a result, the credit card processor faces costs of at least 1.06%+ 0.22, or about 1.61% on the average debit card transaction size of $40.  In my opinion it is unlikely that any credit card processor would actually provide services at such a steep loss.  More likely, they are neglecting to mention that there is also a per-transaction fee, which in my example $40 transaction, is more than 30% of the total cost.
  • Even if they are passing along at cost or taking a loss on those in-person debit transactions, the advertised 0.95% rate would not apply to any card-not-present transactions.  It also would not apply to the 70% of transactions that are not debit card transactions, even if they occur in person.  A common trick that credit card processing companies and their resellers play is called Marking Up Downgrades.  They pass along one transaction type at a loss, which they advertise heavily.  They then build in lots of extra margin into the other transaction types, which are much more plentiful, which they do not disclose.

I hope nobody falls for such a sneaky trick.

To get fair apples-to-apples comparisons between credit card processors, use FeeFighters.

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